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This paper uses the block-booking film exhibition contracts that were the subject of Paramount to examine the role of contract terms in facilitating self-enforcing relationships. Because of the large uncertainty in film value at the time of contracting, it is difficult to fully specify optimal exhibitor performance (such as exhibition run length) ex ante. Instead, the efficient contractual arrangement contractually overconstrains exhibitors and relies on the superior reputational capital of distributors to flexibly adjust contract terms ex post. The analysis illustrates that, rather than thinking of contracts as either court-enforced or self-enforced, transactors generally combine court-enforced and self-enforced sanctions by using contract terms to economize on their limited reputational capital. Block booking is explained within this framework by its effects on reducing the variance in the value of the film package and, therefore, the demands placed on the distributors' reputational capital. Copyright 2000 by the University of Chicago.

After working well for more than 5 years, the Fisher Body-General Motors (GM) contract for the supply of automobile bodies broke down when GM's demand for Fisher's bodies unexpectedly increased dramatically. This pushed the imperfect contractual arrangement between the parties outside the self-enforcing range and led Fisher to take advantage of the fact that GM was contractually obligated to purchase bodies on a cost-plus basis. Fisher increased its short-term profit by failing to make the investments required by GM in a plant located near GM production facilities in Flint, Michigan. Vertical integration, with an associated side payment from GM to Fisher, was the way in which this contractual hold-up problem was solved. This examination of the Fisher-GM case illustrates the role of vertical integration in avoiding the rigidity costs of long-term contracts. Copyright 2000 by the University of Chicago.

Governmental Regulation of Cigarette Health Information Author(s): Lynne Schneider, Benjamin Klein and Kevin M. Murphy Source: Journal of Law and Economics, Vol. 24, No. 3, Consumer Protection Regulation: A Conference Sponsored by the Center for the Study of the Economy and the State (Dec., 1981), pp. 575-612 Published by: The University of Chicago Press for The Booth School of Business of the University of Chicago and The University of Chicago Law School Stable URL: http://www.jstor.org/stable/725279 . Accessed: 05/03/2014 18:46